How High Are Surgical Practice Credit Card Processing Fees?

How High Are Surgical Practice Credit Card Processing Fees?

According to The Journal of the American Medical Association (JAMA), surgeons report the highest rates of stress of all medical professionals. Not to mention surgeons undergo some of the most rigorous and expensive training. According to the American College of Surgeons, a typical surgery graduate has over $220,000 in debt. The last thing a surgeon needs to worry about is a dishonest merchant services provider (MSP) who is overcharging them for their surgical practice credit card processing fees.

Yet this is very often the case. MSPs know that surgeons make much more than their average customer, and are more than happy to charge a little bit more for their services. MSPs are also keenly aware that surgeons generally have zero downtime to properly research how credit card processing fees work, and what is and isn’t a fair rate.

What’s a fair surgical credit card processing rate?

If you’re accepting one of the four major credit card networks—Visa, Mastercard, American Express, or Discover—then you’re paying somewhere between 1.5–2.9% in credit card processing fees. For a while, Amex members who owned healthcare businesses were paying as much as 3.5%, but rates have gone down.

If you’re paying almost 3% for your credit card processing rates, there’s no good reason for it.

The only reason you’d be paying that much is if you agreed to a multi-tiered plan riddled with hidden fees and complex surcharges. Cosmetic and plastic surgeons could be paying an extra $500 to $1,000 extra per month in extraneous credit card processing fees.

The average cosmetic surgery practice has a profit margin of 30%, which means expenses are about 70% of all revenue. In this type of business, lowering extraneous or unnecessary expenses should be a priority. Fortunately, credit card processing fees are one of the easiest expenses to reduce.

How many of your patients pay with credit cards?

According to the American Society of Plastic Surgeons, 1.78 million surgical cosmetic procedures were performed in the U.S. in 2016, totaling over $8 billion in billable revenue. That’s an average cost of $4,494.38 per procedure.

Just look at the prices below for some of the most popular cosmetic procedures in the U.S.:

Simply put, cosmetic procedures like plastic surgery are very expensive and typically not covered by insurance. And as decades of consumer surveys and studies have shown us time and again, Americans make expensive purchases with credit cards.

Most cosmetic and plastic surgery patients will pay with either a healthcare credit card or a regular credit card. Others may pay with a home equity line of credit (HELOC) or another personal loan. Very few people can afford to pay in cash.

That being said…a surprising number of wealthy patients prefer to pay with credit cards as well, according to TSYS. This makes sense—the more money you have, the less likely you are to want to pay for it out of your investments, and the more likely you are to be confident you can pay it back.

Keep in mind that 81.63% of dental patients paid with credit cards. Seeing as how cosmetic procedures are generally more expensive than dental procedures, let us assume that at least 80% of cosmetic surgery / plastic surgery patients pay with credit cards, too.

Merchant services providers know this, which is why they’re so eager for your business. Whether your patients pay with their own cards or are covered by insurance—which typically reimburses surgeons with virtual credit card payments—you’re going to need a reliable MSP.

How merchant services providers (MSPs) might trick you

The merchant services industry is full of confusing terms and jargon that they know you don’t understand and won’t bother learning. These are the most common ones:

Effective rate: The average of all fees you must pay per transaction, including your MSP’s markup, which is how they make money.

Pass-through rate: This refers to both fixed interchange fees the MSP must pay to the card-issuing bank, as well as assessment fees the MSP must pay to the card brand.

Interchange fees: These are the fees paid to the card-issuing bank.

Assessment fees: These are the fees paid to the card brand.

The best way to compare quotes from different MSPs is to find the best credit card processing rates for your practice is by looking at the ‘effective rate’ and to ask for ‘pass-through pricing’. As a reminder, the pass-through rate includes fixed fees an MSP pays to banks and card brands.

Here’s what most MSPs won’t explain to you. As the customer, you can either choose to have your MSP bill you these fees at no extra cost (hence, pass-through pricing) or you can choose to have your MSP pay the pass-through fees as a courtesy on your behalf.

If you choose the latter option, thinking it will be more convenient, you will likely be overcharged for the convenience of having your MSP pay the pass-through fees on your behalf.

Another way MSPs will try to foist a higher rate on you is by only quoting you their markup rate, and counting on the fact that you don’t know enough about credit card processing to also ask for the pass-through rates. This makes their fees seem much lower than everyone else’s, when the exact opposite may be true.

Ask your credit card processor for the following

How is it possible for an industry like credit card processing to be so opaque? Because it’s legal. Credit card processing by third parties is largely unregulated, so the majority of MSPs out there are incentivized to be less than ethical.

Finding an honest MSP for your credit card processing isn’t impossible, but it’s not as easy as calling the first number that shows up in your search results. Before you decide on your MSP, ask them for the following in good faith:

Full disclosure—Ask for a full quote that lists every rate and fee. If you see anything that’s difficult to understand, be wary. Ask that they explain everything thoroughly.

Pass interchange credits—This is industry jargon for the rebates you’re supposed to get from your bank each time you have to refund a customer. In these situations, the bank will refund you half of the processing fees. But if you’re not paying attention, your MSP could be pocketing this credit themselves.

No cancellation fees—This one’s easy. If an MSP claims that it can’t waive the cancellation fee, the truth is that they can. They just don’t want to unless you’re insistent.

No rate increases. Some MPs will raise the rates on you every couple years and claim it’s normal business practice. It’s definitely not. Because credit card processing fees are a percentage of payments, they naturally adjust for inflation. Your MSP will make a profit even if your rate never increases.

What about Health Savings Accounts / Flexible Spending Accounts?

You may have some patients who want to use their health savings account (HSA), health reimbursement account (HRA), or flexible spending account (FSA) to pay for their cosmetic procedure. If you want to accept these types of cards, you’ll need to let your processor know the correct classification.

You can find your correct classification code in the merchant category codes (MCC), which designates your business type. For cosmetic and plastic surgeons, the correct MCC is 8011.

Note that this refers to the median salary (i.e., profit before taxes), not revenue. We can use the aforementioned profit margin of the average surgical practice (30%) to extrapolate the average revenue of surgical practices: $1,284,557.

We can also assume that the average surgical practice accepts most of its payments (80%) via patient credit cards or through public or private insurance.

With these assumptions, let’s see how much the average plastic surgeon/cosmetic surgeon paid to their credit card processor in 2019 on the higher end—as well as how much they’d pay over a 30-year career, assuming revenue does not increase (in other words, these are very conservative estimates):

# of years in business:

30 years

Annual revenue:

$1,284,557.00

30-year total revenue:

$38,536,710.00

% of credit card payments:

80.00%

Average credit card processing rate:

0.029 (2.9%)

Processing fees in 2019:

$29,801.72

Processing fees over 30 years:

$894,051.67

Here’s some perspective. In 2017, the median home price in the U.S. was $199,200, which means your surgical practice credit card processing fees over 30 years would add up to almost five single-family homes.

In other words, if the average surgical practice overhead is as high as 70% and only had $385,367 in profits, that means that the average 30-year credit card processing total for surgical practices is higher than TWO ENTIRE YEARS of your take-home profits.

Fortunately, there is a better option that doesn’t force you to pay the processing fee for credit card payments. In fact, done right, you can accept card and cash payments while enjoying 100% of your profits.

What a cash discount program can do for you

With a cash discount program, you don’t have to deal with irritating credit card processing fees that scalp your profits or become a cash-only surgeon.

Simply put, a cash discount program is a type of credit card surcharge program that specialized merchant services providers can help set up for your surgical practice. The best part? It’s 100% legal and compliant.

If you’d like to learn more about a cash discount program and how we can help you set one up in less than a week, just click the button below or call +1 (929) 293-1800: